How The Census Is Impacting Investments

John M. Eade is president and director of research of Argus Research Corporation. He and Wallace Forbes discuss the importance of the census and figuring out the demographic changes before they are published.

John Eade: I'd like to talk briefly about an event that I think a lot of investors aren't really focusing on right now but that could have an impact and should have an impact on the investment landscape over the next few years: the results from the 2010 census.

The data was collected earlier this year and President Obama is going to have a report on his desk by the end of the year that is going to outline some pretty important and significant demographic changes. And we think that the better investors can anticipate these changes, and act on them, the more opportunity they're going to have to take advantage of some emerging trends.

Wallace Forbes: That's very interesting. Definitely very useful background to make some decisions against.

Eade: We think that the census in 2010 is going to show a 10% gain in population vs. the prior census with about 310 million citizens now living in America. One of the key drivers is going to be the Hispanic population, probably accounting for about 50% of the growth.

We expect to see a lot of the growth occurring over the next 10 years in the South and the West. And we know that the growth in the U.S. is going to be much greater than the growth in Europe and Japan, two other major industrialized areas that are barely growing at all.

One other important point, and then we'll get to the stock idea, is that the echo generation boom--the folks who are now 16- to 35-years old--over the next 10 years are going to overtake the baby boom generation and become the biggest demographic in the country. We could end up with 85 million echo boomers versus 81 million baby boomers. The baby boomers have always taken top billing, and they're going to have to move back a row here to the echo boomers.

This changing of the guard from the baby boomers to the echo boomers will certainly affect industries, including health care, apparel, housing, transportation, food and several other sectors. Now, there are two ideas I want to talk about. One is in the housing sector, and one is in the food industry.

First on housing--the stock I'd like to talk about is
KB Home
, which is a blue-chip housing company, headquartered in Los Angeles, with operations in California, Arizona, Nevada, Texas and Florida. The parts of the country that the census indicates are going to be growing.

The echo boomers are going to be buying their first homes, shifting from renting to first time home purchases. And, sure enough, KB Home has their focus is on the first-time home buyer, and they've got a clear recognition that they must offer new homes at prices that are competitive in the current environment, where you have motivated resellers and foreclosures that are on the market. Although we think that housing sector is showing signs of bottoming, KB Home is actually trading near 52-week lows. So we think that these shares currently offer a value in not only a near-term scenario, with the housing market bottoming, but in the longer-term scenario, with conclusions from the census of which segments are going to be growing, and which areas in the country are going to be seeing that growth.

Forbes: I think that hits the nail very clearly on the head as to the why--the pricing, the value and the opportunity.

Eade: The second stock I wanted to talk about is in the food industry is
General Mills
. We think General Mills is doing a great job of targeting both of these key demographic groups--the baby boomers and the echo boomers. With the baby boomers, they're going to be spending more on food at home, and less on food outside the home and, as they retire from the workplace, spending more time at home. General Mills is well positioned, we think, on that trend, thanks to its strong portfolio of value-oriented brands.

But the company continues to invest in marketing and new product development to drive growth for the echo boomers, too. Many of the new products are targeted to children under 12, who are going to be in that echo boom, as well as to Hispanic consumers. We've talked about how that's one of the fastest growing market segments. General Mills says that it has doubled advertising spending directed at Hispanic consumers over the past few years, and has seen improved sales as a result.

The shares aren't quite the value of KB Home, Wally. It is actually kind of rare these days, but the stock recently split two for one. I think that is a good signal from management that the future prospects look very positive for General Mills.

We think these companies are doing a good job of really understanding what the census is going to be concluding, and actually staying a step ahead of where the market is going.

Forbes: John, those are two very interesting stocks from what you're suggesting as opportunities to be spotlighted by the census. That's very helpful.